How can my business get a loan with no credit history?

Q: How can I get a business loan to buy the inventory to expand my business, especially when my business has not been around long enough to have much of a credit history?

A: Businesses without established credit relationships do have financing options to fall back when they attempt to get a loan:

1. Your personal credit history

When dealing with fledgling businesses, lenders typically look past the track record of the company and focus on the creditworthiness of the owners. This can help you qualify for a business loan if you have a good credit record, though it can also hold you back if you have had credit problems personally.

The possibility that you may someday want to start a company adds a business focus to the list of personal financial reasons for maintaining a good credit history. Manage your credit record carefully because it can be a precious asset.

2. A well-articulated business plan

This can demonstrate to potential lenders that your venture has a good chance of being successful enough to pay back the loan. Lenders are going to want to see that you have analyzed the competition, formulated a marketing strategy and crunched the numbers to determine your cash flow needs.

If you have not yet formalized a business plan, do it before you start contacting lenders. Without one, you will look unprepared.

3. Collateral

Very often, small business lenders are going to look for assets of value to serve as collateral. You mention inventory in your question, and if this inventory has clear value and can be readily liquidated, perhaps it can serve as collateral. In addition to business assets, the bank might also accept as collateral any personal assets you have, especially those that can be easily transferred and liquidated, such as savings accounts or marketable investments.

4. SBA loans

The U.S. Small Business Administration (SBA) is an important resource for business owners because it can help obtain financing for businesses that could not otherwise qualify for a loan. The SBA does not make loans directly, but it guarantees loan made through banks, credit unions and other lenders to businesses that meet its requirements.

SBA loans are not a giveaway - you are still going to have to demonstrate the personal credibility and thorough business plan that any lender would require. However, the SBA's guarantee can take the place of collateral if you do not have the type of assets necessary to back a loan.

5. Crowdfunding or peer-to-peer lending

With income sources like savings and money market rates near zero, investors are turning to alternatives like crowdfunding and peer-to-peer lending to earn better returns. This creates alternative sources of funding that might work for your business.

It may seem there are several hoops to jump through to get a small business loan, but ultimately lenders are just trying to assure themselves that you have a reasonable chance of repaying the loan. That scrutiny should also help you avoid taking on a financial responsibility that you won't be able to handle.

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